How Commercial Real Estate Brokers Work

Many small business owners find it invaluable to enlist a
professional real estate broker’s help in finding rental space,
especially if your landlord will have one, and particularly if your
needs are unique or space is at a premium.

To act as a real estate broker, a person needs to get a license. The
requirements vary by state, but usually involve passing an exam, taking
continuing education courses, and adhering to strict rules issued by the
state. Brokers may play different roles in landlord-tenant
transactions, so it’s a good idea to understand the various types of
arrangements, before you start looking for a broker or sign a contract with one.

Brokers Who Work for Landlords

In a traditional commercial leasing situation, the landlord lists
available space with a broker who then goes out looking for tenants. If a
lease gets signed, the landlord pays the broker a commission—typically
3% or so of the rent paid over the life of the lease. The broker with
whom the landlord lists the property is called the listing broker. If
another broker (a nonlisting broker) brings in a tenant and a lease gets
signed, the two brokers usually split the commission.

Under this traditional way of doing business, the listing broker is
the landlord’s agent, and is duty-bound to work out a lease that’s as
favorable as possible to the landlord. Legally speaking, even a
nonlisting broker is the landlord’s agent unless you and that broker
work out something different. Obviously, it’s crucial for you to know
right from the get-go if the broker you’re dealing with is obligated to
look out for your interests. Laws in most states require brokers to tell
you whom they’re working for.

Brokers Who Work Exclusively for Tenants

If you’re uncomfortable dealing on your own with a landlord and the
landlord’s broker, you can engage your own broker, who will represent
solely your interests. A broker who works exclusively for you has one
main assignment—to get you a good deal on a space that meets your
needs—not to help the landlord quickly fill the building or get top
dollar rent. An experienced broker can help you evaluate the financial
consequences of the landlord’s lease terms, and can spot hidden charges
that translate into higher rent. Finally, the broker who’s acting as
your agent can help in lease negotiations—a terrific boon if, like many
people, you don’t feel like you’re a natural born negotiator.

The main disadvantage to hiring your own broker is that you might
have to pay all or a portion of the commission (unless you negotiate a
different payment plan, such as a flat fee). If your share of the
commission is half of 3% of the rent over the life of your lease, you
could be looking at a significant amount of money. And because the
broker doesn’t usually earn any money until a lease is signed, brokers
have an interest in closing a deal sooner rather than later. But here,
at least, you’ll find that market forces will put pressure on brokers to
put their client’s best interests first.

Brokers Who Work for Landlords and Tenants

The next best thing to engaging a dedicated tenant’s broker is to
find a reputable broker who works for landlords or tenants. You’ll have
an easier time finding a broker like this to work for you, as opposed to
finding a broker who works exclusively with tenants. Such arrangements
will work just fine when your broker is showing you properties
represented by brokers in other offices. However, the situation gets
cloudy if your broker’s own office has taken listings for spaces that
you want to see. This puts your broker in an awkward position. The
broker is duty-bound to find you the best space, regardless of who has
the listing, but is also committed to contribute to the success of the
office. You’ll want to address this potential conflict in your written
contract with the broker.

Brokers Who Are Dual Agents

A final option, allowed in some states, involves asking the broker to
step away from his or her role as an advocate and instead assume a
neutral stance. A broker who works like this is known as a dual agent.
Since this type of broker’s role is limited to attending to mechanical
details and helping to make sure the transaction flows smoothly, the
benefits of using a dual broker are limited. You won’t really get much,
if anything, in the way of useful advice or practical guidance, since
the dual agent can’t be your advocate.